March 2021

The Dollar and Corporate Borrowing Costs

Ralf R. Meisenzahl, Friederike Niepmann, and Tim Schmidt-Eisenlohr

Abstract:

We show that U.S. dollar movements affect syndicated loan terms for U.S. borrowers, even for those without trade exposure. We identify the effect of dollar movements using spread and loan amount adjustments during the syndication process. Using this high-frequency, within loan variation, we find that a one standard deviation increase in the dollar index increases spreads by up to 15 basis points and reduces loan amounts and underpricing by up to 2 percent and 7 basis points, respectively. These effects are concentrated in dollar appreciations. Our results suggest that global factors reflected in the dollar affect U.S. borrowing costs.

Keywords: loan pricing, syndicated loans, dollar, institutional investors, risk taking.

DOI: https://doi.org/10.17016/IFDP.2021.1312

PDF: Full Paper

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Last Update: March 30, 2021